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Mark scheme

January 2004

GCE
Economics
Unit ECN2

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Mark Scheme January 2004

Economics ECN2 - Advanced Subsidiary

ECN2/1

This component is an objective test for which the following list indicates the
correct answers used in marking the candidates responses.
KEY LIST

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1.

9.

2.

10.

3.

11.

4.

12.

5.

13.

6.

14.

7.

15.

8.

Advanced Subsidiary - Economics ECN2

Mark Scheme January 2004

ECN2/2

General Instructions
Marks awarded to candidates should be in accordance with the following mark scheme and examiners
should be prepared to use the full range of marks available. The mark scheme for most questions is
flexible, permitting the candidate to score full marks in a variety of ways. Where the candidates
response to a question is such that the mark scheme permits full marks to be awarded, full marks
MUST be given. A perfect answer is not necessarily required for full marks. But conversely, if the
candidates answer does not deserve credit, then no marks should be given.
Occasionally, a candidate may respond to a question in a reasonable way, but the answer may not have
been anticipated when the mark scheme was devised. In this situation, OR WHENEVER YOU
HAVE ANY DOUBT ABOUT THE INTERPRETATION OF THE MARK SCHEME, you must
in the first instance telephone your team leader to discuss how to proceed.
Two approaches have been used in the construction of the mark scheme for the data response
questions:
(i)

An issue based approach. The mark scheme for parts (a) and (b) of the data response
questions adopts this approach. The mark scheme lists the marks that can be awarded for
particular issues (and associated development) that the candidate might include in the answer.
Marks awarded for development should take into account the Quality of Written
Communication used by candidates as indicated on page 6 of this mark scheme.

(ii)

A levels approach. This approach is used for marking part (c) of the questions. The mark
scheme summarises the information required to answer the question, but without attaching
marks to particular issues. Marks should be awarded according to whether the answer
displays the skills indicated by the five Mark Band Descriptors or Levels of Skill included
in the mark scheme. The Mark Band Descriptors are set out on page 5. When using a levels
mark scheme the marker must identify where a particular skill is being demonstrated. The
key to be used to identify the skill is shown on page 6. The level chosen should be the one
which best fits the answer provided by the candidate. It is not intended that the answer
should satisfy every statement in the level description.

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Mark Scheme January 2004

Economics ECN2 - Advanced Subsidiary

APPLYING THE LEVELS MARK SCHEME


Levels of Response Mark Band Descriptors
In part (c) of the data response questions approximately half the marks are available to award to
candidates who demonstrate that they can evaluate economic arguments and evidence, and make
informed judgements. It is not necessary that the candidate identifies a wide range of issues. As
indicated below, the Quality of Written Communication used should be taken into account when
awarding the marks.
Level 1
Few, if any, relevant issues are recognised. Economic concepts and principles are not adequately
understood or applied to the question. No satisfactory analysis or evaluation. A poorly organised
response which generally fails to answer the question. Descriptions and explanations lack clarity.
Spelling, punctuation and grammar may be poor. There is little use of economic terminology.
0 to 3 marks
Mid-Point: 2 marks
Level 2
One or more relevant issues are recognised. An attempt is made to use basic economic concepts to
answer the question but the candidates explanation may become confused. There may be some
attempt to present alternative points of view but any attempt at evaluation is superficial. The answer is
likely to be poorly organised and is unlikely to have a clear structure. The candidate demonstrates
some ability to spell commonly used words and to follow the standard conventions of punctuation and
grammar. Some use of economic terminology is made but this is not always applied appropriately.
4 to 6 marks
Mid-Point: 5 marks
Level 3
Two or more relevant issues are recognised. The candidate has made a reasonable attempt to apply
economic concepts and ideas. A satisfactory understanding of some basic economic concepts and
theories is demonstrated. There will be some attempt to present alternative views and to evaluate the
issues, arguments and/or data. There is some logic and coherence in the organisation of the answer.
The candidate is generally able to spell commonly used words and usually follows the standard
conventions of punctuation and grammar. Some descriptions and explanations are easy to understand
but the answer may not be expressed clearly throughout. There is some evidence of the correct use of
relevant economic terminology.
7 to 9 marks
Mid-Point: 8 marks
Level 4
Two or more relevant issues are identified. Good understanding of some basic economic concepts and
models is demonstrated. The candidate is able to apply these concepts and models to help answer the
question. An appreciation of alternative points of view is shown. Satisfactory use is made of evidence
and/or theoretical analysis to evaluate the issues/arguments identified and to support conclusions.
Spelling is generally accurate and the standard conventions of punctuation and grammar are usually
followed. The answer is well organised. Descriptions and explanations are usually clearly expressed.
Appropriate use is made of relevant economic terminology.
10 to 12 marks
Mid-Point: 11 marks
Level 5
Three or more relevant issues are identified. Good understanding of basic economic concepts and
models is demonstrated throughout. The candidate is able to apply these concepts and models to help
answer the question. Clear understanding of alternative points of view is shown. Good use is made of
evidence and/or theoretical analysis to evaluate the issues/arguments identified and to support
conclusions. Spelling is generally accurate and the standard conventions of punctuation and grammar
are usually followed. The answer is well organised. Descriptions and explanations are clearly
expressed. Appropriate use is made of relevant economic terminology.
13 to 15 marks
Mid-Point: 14 marks

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Advanced Subsidiary - Economics ECN2

Mark Scheme January 2004

THE KEY TO BE USED WHEN USING THE LEVELS MARK SCHEME


D

Where a particular economic term is correctly DEFINED in order to help the candidate to
answer the question properly.

Where a relevant ISSUE is raised by the candidate.

Where the candidate demonstrates KNOWLEDGE of recent developments or features of


the economy which help enhance the candidates response to the question. This should also
be used where the candidate quotes relevant examples.

Ap

Where the candidate demonstrates the ability to APPLY knowledge and CRITICAL
UNDERSTANDING to problems and issues.

Where the candidate demonstrates the ability to ANALYSE the problem using appropriate
economic ideas.

Where the candidate EVALUATES and makes judgements about the significance of
various issues and arguments.

QUALITY OF WRITTEN COMMUNICATION


The Mark Band Descriptors, which are used for assessing part (c) of the questions, incorporate
statements which relate to the Quality of Written Communication used by the candidates.
However, it is also important to assess Quality of Written Communication whenever candidates
produce answers using continuous prose. When applying an issue based mark scheme, examiners
must take into account the following when deciding how many marks to award for development:
(i)
(ii)
(iii)
(iv)

use of appropriate form and style of writing to organise relevant information clearly
and coherently;
use of specialist vocabulary, where appropriate;
legibility of handwriting;
accuracy of spelling, punctuation and grammar.

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Mark Scheme January 2004

Economics ECN2 - Advanced Subsidiary

EITHER
1

INFLATION

Total for this question: 25 marks

1 (a) Using the data in Extract A, compare the main changes in the rates of inflation for goods and
services for the period 1994 to 2002.
(4 marks)

Award one mark for each valid point made such as:

the divergence between the rates of inflation for the two sectors grew over the period;

the persistent inflation in the service sector up to 2002 contrasts with the rate of inflation in the
goods sector which hovers around zero from 2000 and eventually becoming negative;

fluctuations in the rate of inflation have been greater in the goods sector than in the service sector.

Candidates who do not provide an overview or confuse a fall in the rate of inflation with a fall in the
price level, should be awarded a maximum of 2 marks.
MAXIMUM FOR PART (a) 4 MARKS

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Advanced Subsidiary - Economics ECN2

Mark Scheme January 2004

1 (b) Explain how interest rates might help to control inflation (Extract B, line 14).

(6 marks)

For candidates who:


define inflation:

1 mark

state that interest rates will affect AD (1) and outline the components of AD,
perhaps in an equation format (1):

Up to 2 marks

explain how interest rates may affect AD, and hence inflation, by referring to
the impact of interest rates on such things as the price of loans, the cost of
consumer credit and mortgages, decisions to save and invest:

Up to 3 marks per
relationship
explained

explain other relationships and the relevance to inflation e.g. interest rates and
exchange rates:

Up to 3 marks per
relationship
explained

use an AD-AS diagram, for example, to show the impact on the price level
and output as the AD curve moves to the left or right:

Up to 3 marks

Of course, candidates may refer to cuts in interest rates, but are more likely to refer to increases, given
that the question refers to the use of interest rates to control inflation. Either approach is equally valid.
While reference to the data to illustrate any of the above points should be given due credit, candidates
who simply copy/list points from the last paragraph of Extract B without further elaboration should be
awarded a maximum of one mark.
MAXIMUM FOR PART (b) 6 MARKS

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Mark Scheme January 2004

Economics ECN2 - Advanced Subsidiary

1 (c) Using the data and your economic knowledge, evaluate the view that reductions in firms
production costs have been more significant than the control of aggregate demand in achieving
low inflation in the UK economy.
(15 marks)

It is likely that the better candidates will successfully link their answer for part (b) to the requirements
of part (c) i.e. avoid extensive repetition. The data offer considerable guidance on what could be
discussed on the cost side and it is expected that candidates will be able to develop these points, relate
them to the importance of demand-management, and arrive at an appropriate conclusion. Where
candidates develop a supply-side answer when dealing with cost issues, it must have adequate focus
on the issue of production costs to be given credit, e.g. the way in which research and development
can lead to technological change and lower unit costs.
Issues and areas for discussion include:

definition and explanation of low inflation;


the distinction between cost-push and demand-pull inflation without necessarily the explicit use
of these terms;
costs of production of firms, perhaps distinguishing those costs which might be more significant
for manufacturing compared to those for service activities;
the relevance of costs to pricing decisions and hence potentially to inflation;
the components of aggregate demand;
ways of influencing aggregate demand, perhaps including one or more of: monetary, fiscal,
exchange rate policies; consideration of earnings growth;
the role of the MPC;
influences on the demand for goods and on the demand for services;
the impact of technology (IT and production technology) directly on costs and indirectly via
productivity improvements;
falling inflation > expectations of inflation weakening further > potential impact on certain costs
(e.g. lower wage costs as pay claims come to reflect lowering expectations; suppliers of inputs
to other firms moderating or postponing price increases);
the impact of competition on prices in the privatised sectors such as gas, electricity and
telecommunications, prices which become costs to other firms;
falling transport costs making international sources of inputs more viable;
reduction in trade barriers causing more intense competition between suppliers;
the world slow-down causing falling commodity prices;
the general impact on costs expected from globalisation;
economies of scale more significant in the goods sector than in services, allowing unit costs to
fall more readily;
the importance of effective demand-management in controlling inflation and hence creating a
climate of confidence in the business world which will encourage more investment and R&D,
helping to reduce unit costs further via improved efficiency and productivity;
the downward pressure on costs possibly bringing a cure to any inflation problem over the long
term rather than just short term control;
the experience of the UK economy in recent years, to help support a conclusion;
an overview of the issues raised.

Candidates should be rewarded for use of diagrams that are correctly drawn.

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Advanced Subsidiary - Economics ECN2

Mark Scheme January 2004

The issues identified are intended to provide an indication of some of the points that might be
discussed and candidates can only be expected to consider a few of these in the time available.
Evaluation:
In this part of the question, candidates will need to demonstrate that they are able to evaluate issues
and arguments to support conclusions, if they are to be awarded more than 7 marks.
Candidates who make a genuine attempt at evaluation should be well rewarded. They should not be
awarded marks above Level 3 if evaluation does not go beyond the superficial. However, within this
constraint there should be scope to award the more implicit evaluation i.e. where there is some
evidence of judgements having been made by a candidate as to what is relevant/not relevant to
include.
To gain Level 4 or 5 there needs to be more explicit evaluation in terms of evidence of
critical/informed comment on issues raised, the ability to make judgements and to draw conclusions
from the material presented in the answer.
USE THE LEVELS MARK SCHEME ON PAGES 5 & 6
MAXIMUM FOR PART (c) 15 MARKS

10

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Mark Scheme January 2004

Economics ECN2 - Advanced Subsidiary

OR
2

ECONOMIC GROWTH

Total for this question: 25 marks

2 (a) Using Extract C, compare economic growth in the major economies of the world for the period
1998 to 2003.
(4 marks)

Award one mark for each valid point made such as:

throughout the period, the US achieves the highest rate of economic growth of all the major
economies, while Japan has the worst growth performance;

of all the economies shown, only Japan experiences negative growth;

with the possible exception of 2002 (if the forecast proves to be correct), the UK and the Euro area
had similar rates of economic growth;

a comparison of the actual and forecast figures, perhaps making reference to the likely
inaccuracy/optimism of the forecasts for 2002/2003 (given what will be known by candidates
sitting the paper in January 2004).

Candidates who do not provide an overview or who confuse a fall in the rate of growth with negative
economic growth should be awarded a maximum of 2 marks.
MAXIMUM FOR PART (a) 4 MARKS

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11

Advanced Subsidiary - Economics ECN2

Mark Scheme January 2004

2 (b) Explain the possible effects on the UK economy of strengthening aggregate demand
(Extract D, line 6).
(6 marks)

For candidates who:


outline the components of AD, perhaps with the help of an equation (1), and state
that changes in any one of the components can affect GDP (1):

Up to 2 marks

state that the effects will depend on the extent to which, and how rapidly, AD
strengthens, and the response of the supply-side, perhaps drawing a distinction
between short run and long run effects:

Up to 3 marks

use an AS-AD diagram to illustrate changes in AD in relation to a particular AS


condition:

Up to 3 marks

explain the possible effects of strengthening AD in the economy e.g.


the impact on:

Up to 3 marks per
example explained

- short term economic growth;


- employment/unemployment;
- inflation;
- household savings and hence on consumption;
- business investment;
- exports/imports, the Balance of Payments on current account;
- the exchange rate.
While reference to the data to support the above should be given due credit, candidates who only
copy/list brief (albeit appropriate) references without development should be awarded a maximum of
one mark.
MAXIMUM FOR PART (b) 6 MARKS

12

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Mark Scheme January 2004

Economics ECN2 - Advanced Subsidiary

2 (c) Using the data and your economic knowledge, evaluate the importance of supply-side policies to
the achievement of higher economic growth in countries such as the UK.
(15 marks)

It is likely that the better candidates will successfully link their answer to part (b) to the requirements
of part (c) i.e. avoid extensive repetition of their explanation of demand-led growth. Certain leads can
be taken from Extracts C and D (for example, references to welfare and labour market reforms in C,
the promotion of enterprise and innovation in D), and developed using their own knowledge.
Candidates can be expected to convey the nature of supply-side reforms, and their importance in
allowing economic growth to be achieved without the accompanying problems such as inflation and
balance of payments deficits. Within this, some discussion of demand management can be expected
also.
Issues and areas for discussion include:

economic growth;
actual and trend growth;
the significance of the output gap where it exists;
the importance to some supply-side policies of there being a favourable economic climate
created by effective demand-management policies;
the meaning/relevance of boom and bust the likely short term nature of demand-led growth
and potential problems;
the nature of supply-side policies with reference to issues such as incentives, mobility,
flexibility, competition and competitiveness;
the medium term/long term nature of many of the supply-side policies;
the relevance of supply-side policies to continuous economic growth;
production possibility and AS-AD analysis;
specific supply-side policies where reference to actual policies introduced might be expected:
welfare reform;
tax policy;
competition policy;
privatisation;
productivity;
technology (R&D);
investment;
education and training;
labour market reform;
the current/recent UK situation of economic growth accompanied by low inflation and falling
unemployment, perhaps with an historical perspective, with discussion of macro-economic
conflicts;
the need to coordinate AD growth with supply-side improvements;
an appropriate conclusion e.g. the importance of supply-side improvements in raising trend
growth and allowing the achievement of continuous economic growth, but not neglecting the
importance of well-managed growth of AD.

In the raising of issues, and given the nature of the data, candidates may well refer to economies other
than the UK and these references should be given due credit.
The issues identified are intended to provide an indication of some of the points that might be
discussed and candidates can only be expected to consider a few of the issues in the time available.
Evaluation:

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13

Advanced Subsidiary - Economics ECN2

Mark Scheme January 2004

In this part of the question, candidates will need to demonstrate that they are able to evaluate issues
and arguments to support conclusions, if they are to be awarded more than 7 marks.
Candidates who make a genuine attempt at evaluation should be well rewarded. They should not be
awarded marks above Level 3 if evaluation does not go beyond the superficial. However, within this
constraint there should be scope to award the more implicit evaluation i.e. where there is some
evidence of judgements having been made by a candidate as to what is relevant/not relevant to
include.
To gain Level 4 or 5 there needs to be more explicit evaluation in terms of evidence of
critical/informed comment on issues raised, the ability to make judgements and to draw conclusions
from the material presented in the answer.
USE THE LEVELS MARK SCHEME ON PAGES 5 & 6
MAXIMUM FOR PART (c) 15 MARKS

14

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